‘Nearly a quarter century of dreadful financial decisions by PERS boards went unchecked by governors and lawmakers alike’

As the Oregon Public Employees Retirement System grinds through its fourth year of poor investment returns, media outlets have taken notice. Recent reporting by the Oregon Journalism Project, Lookout Eugene-Springfield and The Oregonian paint a dire picture of the effects of this epic investing failure on every public agency as they struggle to shoulder sharply increasing pension costs.

But poor investment returns are not the only big problem currently facing PERS, as the retirement system is known.

PERS actuaries recently told the PERS Board that public agency pension costs are on track for another big increase. This time the cause of the increase is the depletion of reserves known as “side accounts” that were set up by public agencies years ago to buffer cost increases. Without that buffer, the agencies must make up the difference. 

According to the actuaries, agency contributions will rise to $9.35 billion in 2027-2029, up from just $5.26 billion in 2023-2025. This will undoubtedly send fresh shock waves through every public agency. The PERS Board’s mission of providing stable and predictable contribution rates lies in tatters.

Decades of bad behavior by PERS boards and even the Oregon State Legislature set the stage for today’s troubles.

In 1975, the Legislature and PERS Board each made disastrous decisions: mandating a guaranteed minimum rate of return for PERS members and crediting a large share of investment earnings above that return directly to member accounts. Subsequent PERS boards continued excess crediting for more than two decades, transforming PERS into a massive transfer of wealth from Oregon taxpayers to future retirees.

By the year 2000, the average PERS pension for new retirees with 30 years of service reached 100 percent of their final salaries. System liabilities exploded. When markets crashed in 2008, the system went from 111 percent funded to 80 percent and has never recovered.

Today, PERS’s unfunded liability is nearly $30 billion, about the size of Oregon’s entire general fund revenue for two years. A series of PERS boards since 2008 have not mustered the courage to reduce it.

Reducing the unfunded liability requires asking for even more money from public agencies, something the PERS Board is very unlikely to do as the system reels from the shocks of the last two years. PERS has become a runaway train, gobbling up more billions of taxpayer dollars as the PERS Board looks on powerlessly. It’s a monumental mess with no easy solution.

Missing in the long, deplorable history of PERS is one important element: meaningful accountability for missteps. Nearly a quarter-century of dreadful financial decisions by PERS boards went unchecked by governors and lawmakers alike.

The Oregon Investment Council, the governor-appointed body that oversees PERS investments, still expresses confidence in its investment managers as shown by this misleading press release, which cherry-picked shreds of good news while not acknowledging the collapse of the last four years. And Gov. Tina Kotek appears unconcerned with both the PERS Board and the Investment Council. They continue along as always, despite the wreckage they leave in their wakes.

This must change, but it’s unclear how that will happen. Time and again, court cases have stymied major PERS reform, and it seems a sense of resignation and futility has set in among our political leaders.

The next time your city, county or school district is struggling with its budget, try to understand the magnitude of PERS costs they face, not just in dollar amounts but by the shocking rate of increase. The $9.35 billion that PERS will require in the 2027-2029 biennium is almost 80 percent more than public agencies pay today.